Daily Digest - Mar 26

Thursday, March 26, 2009, 10:16 AM
  • Live, From New York its Saturday Night (Well not really, only if you don't have cable)
  • FACT CHECK: Obama having it both ways on economy?
  • US lawmaker: Obama budget makes US worse than Cuba
  • Prime Minister Brown Takes a Tongue Lashing..(Video Devalued Leader of Devalued Govt.)
  • EU presidency: US stimulus is 'the road to hell'
  • The Answer, of Course, Is 'No'
  • Japan Exports Drop Record 49% as Global Slump
  • U.K. Bond Auction Fails for First Time Since 2002
  • Geithner 'open' to China proposal
  • Postal chief says post office running out of money
  • The New California Gold Rush
  • White House to Hunt for New Tax Revenues
  • Obama Asks Volcker to Lead Panel on Tax-Code Overhaul
  • More Evidence of Volcker Being Marginalized
  • Equity Extraction Chart
  • Equity Extraction Data
  • Example of "Little White Lies..."
  • Durable Goods: Good News Alert? Not Necessarily
  • Change in Personal Income by State Q4 (Chart)
  • Chinese Holdings of U.S. Assets (Chart)
  • Dear A.I.G., I Quit!
  • Option ARM loans turn mortgages into minefields


Live, From New York its Saturday Night (Well not really, only if you don't have cable)

FACT CHECK: Obama having it both ways on economy?

President Barack Obama's plea for patience in the economic turmoil Tuesday fits with the view of most economists that a turnaround will take some time. It doesn't fit quite so neatly with his bullish budget.
The president's spending plans and deficit projections rest on the assumption that the economy will post solid growth next year after a mild, further decline this year. Many economists think that's too rosy.

Obama was more cautious than that in his prime-time news conference-possibly to the point of having it both ways.

A look at some of his statements and how they square with the facts:

THE CLAIM: "We will recover from this recession. But it will take time, it will take patience, and it will take an understanding that when we all work together, when each of us looks beyond our own short-term interests to the wider set of obligations we have to each other, that's when we succeed."

THE FACTS: No one really knows when the recession will end. But Obama's own budget forecasts the recession will continue through this year but with a relatively shallow 1.2 percent decline in the gross domestic product.

Then, the budget predicts solid 3.2 percent growth for 2010, followed by three years of more than 4 percent growth each year.

Christina Romer, head of the White House Council of Economic Advisers, said this week she was "incredibly confident" the U.S. economy will recover within a year.

Congressional Republicans and some Democratic budget hawks have suggested the Obama budget projections are unduly optimistic to make the math to pay for the president's programs work. The higher the GDP growth, the more tax revenues come in.

Meanwhile, the nonpartisan Congressional Budget Office last week predicted that the Obama budget would produce deficits averaging nearly $1 trillion over the next decade.


THE CLAIM: Obama repeated his assertion that his housing bailout will help "stabilize the housing market and help responsible homeowners stay in their homes."

THE FACTS: Even officials in his administration, many supporters of the plan in Congress and the Federal Reserve chairman have said some of the bailout money is bound to go to those who acted irresponsibly.

Fed Chairman Ben Bernanke has said it's important for the nation to go ahead with the plan even though it means assistance will go to some who should have known better than to get in over their heads.

Sheila Bair, head of the Federal Deposit Insurance Corp., made a similar point when she said it's "simply impractical" to examine every delinquent loan and weed out those taken by people who overstated their income or assets to get a mortgage they couldn't afford.

US lawmaker: Obama budget makes US worse than Cuba

President Barack Obama's 3.55-trillion-dollar budget plan will leave the United States with a worse budget deficit than Cuba, a leading Republican critic warned Tuesday.
"This creates for us a higher deficit than Cuba's. This is not the kind of position we want to put the United States in," Republican Minority Leader Mitch McConnell told reporters.

Other Republican critics of Obama's spending policies, including his nearly 800-billion-dollar economic stimulus package, have variously warned that he risks turning the country into Argentina, France, Germany, or Zimbabwe.

Asked for the figures underpinning the charge, a McConnell aide pointed to a report from the non-partisan Congressional Budget Office that warned the US budget deficit for fiscal year 2009, ending September 30, would swell to 13.1 percent of Gross Domestic Product.

Cuba's deficit in 2008 was 4.1 percent of GDP using the official exchange rate, or 1.57 percent using another measure of total national output, according to the CIA.

According to official Cuban government figures, Cuba's projected deficit in 2009 will run to 5.6 percent of GDP, less than the 6.7 percent it reached in 2008.

Prime Minister Brown Takes a Tongue Lashing..(Video Devalued Leader of Devalued Govt.)

EU presidency: US stimulus is 'the road to hell'

BRUSSELS (AP) -- The head of the European Union slammed President Barack Obama's plan to spend nearly $2 trillion to push the U.S. economy out of recession as "the road to hell" that EU governments must avoid.

AP - Czech Prime Minister Mirek Topolanek puts on headphones Wednesday, March 25, 2009 at the European Parliament in ...

The blunt comments by Czech Prime Minister Mirek Topolanek to the European Parliament on Wednesday highlighted simmering European differences with Washington ahead of a key summit next week on fixing the world economy.

It was the strongest pushback yet from a European leader as the 27-nation bloc bristles from U.S. criticism that it is not spending enough to stimulate demand.

Shocked by the outburst, other European politicians went into damage control mode, with some reproaching the Czech leader for his language and others reaffirming their good diplomatic ties with the United States. The leaders of EU's major nations -- France, Britain and Germany, among others -- largely ignored Topolanek and his remarks.

Obama pays his first official visit to Europe next week, aiming to thrash out reforms to the global financial system with the Group of 20 nations and call on NATO allies to commit more troops to the U.S. war in Afghanistan.

The Answer, of Course, Is 'No'

In the article that follows, "Should USA Still Be AAA?" reporter Chris Isidore notes that investors are still buying U.S. government bonds despite the many warning signs that point to trouble ahead.

As we all know, the ones with more money than brains were also buying high-flying dot-com stocks in late-1999, grotesquely-priced derivative and junk bond monstrosities in the spring of 2007, and speculator-pumped commodities last summer, even though it was fairly obvious (except to Wall Street "strategists" and TV pundits) that things were going to end badly.

My (rhetorical) question is: Were they doing the right thing then?

Enough said.

Despite soaring budget deficits, investors are still buying U.S. Treasurys. Still, some critics say the government debt isn't nearly as safe as widely assumed.

When the Federal Reserve announced last week it was buying $300 billion in long-term Treasury notes, the move was viewed as one of the safer bets the central bank has made recently.

After all, the Fed has either bought or announced plans to spend trillions of dollars on troubled mortgages and other types of questionable consumer debt in the past year. At the same time, the Fed has been loaning money to banks and companies that couldn't get funding elsewhere.

So the purchase of AAA-rated Treasurys, the highest credit rating that a bond can have, is probably the least risky thing the Fed can do these days.

Investors agreed: The prices of long-term Treasuries rose after the Fed's announcement, pushing their yields lower. (Bond prices and yields move in opposite directions.) Rates didn't even budge much Friday after the Congressional Budget Office raised its federal budget deficit forecast for this fiscal year.

But is the purchase of Treasurys really as safe an investment as it seems? Some think the U.S. may not be able to hold on to its perfect credit rating indefinitely considering how much money the Fed, Congress and the Treasury Department have thrown at the economy in their attempt to lift it from this recession.

"The only reason someone who bought a Treasury can get their money is that the government is able to borrow more money to pay them off," said Peter Schiff, president of brokerage firm Euro Pacific Capital. "It's impossible for us to just keep going deeper and deeper into debt."


Japan Exports Drop Record 49% as Global Slump

March 25 (Bloomberg) -- Japan's exports plunged a record 49.4 percent in February as deepening recessions in the U.S. and Europe sapped demand for the country's cars and electronics.

Shipments to the U.S., the country's biggest market, tumbled an unprecedented 58.4 percent from a year earlier, the Finance Ministry said today in Tokyo. Automobile exports slid 70.9 percent.

The collapse signals gross domestic product may shrink this quarter at a similar pace to the annualized 12.1 percent contraction posted in the previous three months, the sharpest since 1974. Prime Minister Taro Aso is compiling his third stimulus package as companies from Toyota Motor Corp. to Panasonic Corp. fire thousands of workers.

"There's a still of lot of weakness out there; that's going to be a big drag on production and most people are looking for the first-quarter GDP to be as bad as the previous quarter," said David Cohen, director of Asian economic forecasting at Action Economics in Singapore. "Japan is as dependent on exports as anybody."

U.K. Bond Auction Fails for First Time Since 2002

March 25 (Bloomberg) -- The U.K. failed to find enough buyers for 1.75 billion pounds ($2.55 billion) of bonds for the first time in almost seven years as debt investors repudiated Prime Minister Gordon Brown's plan to stem the worst economic crisis in three decades.

Gilts slumped after the London-based Debt Management Office, which manages bond auctions on behalf of the Treasury, said investors bid for 1.63 billion pounds of the 40-year securities. The last time the U.K. government was unable to attract enough investors was in 2002 when it tried to sell 30- year inflation-protected bonds. The yield on the 4.25 percent gilt due 2049 rose 10 basis points to 4.55 percent.

Brown's government aims to sell a record 146.4 billion pounds of debt this fiscal year and as much as 147.9 billion pounds in 2010 as he tries to pull Europe's second-largest economy out of its worst recession since 1980. The prime minister's plan drew criticism yesterday when Bank of England Governor Mervyn King told lawmakers in Parliament in London the government should be "cautious" about spending and deficits.

"This is a warning signal investors are sending to the government," said Neil Mackinnon, chief economist at hedge fund ECU Group Plc in London, who helps manage about $1 billion in assets and is a former U.K. Treasury official. "Investors are giving the thumbs down to the gilt market."

Geithner 'open' to China proposal (Please see video at bottom of page, thx)

Postal chief says post office running out of money

WASHINGTON (AP) - The post office will run out of money this year unless it gets help, Postmaster General John Potter told Congress on Wednesday as he sought permission to cut delivery to five days a week.
"We are facing losses of historic proportion. Our situation is critical," Potter told a House panel.

The agency lost $2.8 billion last year and is looking at much larger losses this year. Reducing mail delivery from six days to five days a week could save $3.5 billion annually, Potter said.

Potter also urged changes in how the post office pre-pays for retiree health care to cut its annual costs by $2 billion.

If the Postal Service does run out of money, the lingering question, Potter told the House Oversight post office subcommittee, is which bills will be paid and which will not. Ensuring the payment of workers' salaries comes first, he said, but other bills may have to wait.

The New California Gold Rush

I'm here to find gold," said Kevin Brown. "I'm a studio lighting technician in Hollywood, between the writers strike that happened last year, and the Screen Actors Guild, whatever they want to call it. Lately I've had to turn to having to do it for extra cash."
Geologists estimate that during the gold rush of 1849 in California, about 80 percent of the gold was never found. Today, with the price of gold soaring and the economy falling, the idea of panning, digging or diving for precious metal has become serious business.
"There's definitely gold nuggets down in the bottom here," Brown said. "Just a matter of getting 30 feet down lower than any old timer or modern prospector has done."
And, for people willing to put in the effort, it's paying off.

"I just wanted a little California gold. That's all I initially started at," said David Perkins, an unemployed aerospace worker from the South Bay. "And, one thing led to another, and within my first year, I actually picked up close to two pounds of gold."
Where's the best place to find gold? In the Mother Lode country just east of Modesto, Calif., experts say.

White House to Hunt for New Tax Revenues

WASHINGTON -- The White House said it would launch a search for new tax revenues, as Congressional leaders moved to scale back proposed spending increases and tax cuts in President Barack Obama's ambitious budget.

Obama Asks Volcker to Lead Panel on Tax-Code Overhaul

March 25 (Bloomberg) -- President Barack Obama is putting former Federal Reserve Chairman Paul Volcker in charge of a tax- code review aimed at closing loopholes, streamlining the law and generating revenue, budget Director Peter Orszag said.

Volcker, 81, who heads the president's Economic Recovery Advisory Board, is being asked to take a look at the laws in an effort to rebalance the tax system.

Orszag said the review, given a deadline of Dec. 4, is being ordered to make recommendations on steps to simplify the code, built over the last 96 years, in ways that would reduce tax evasion and what he called "corporate welfare."

"There are hundreds of billions of dollars in uncollected taxes each year," Orszag said in a conference call. The Volcker board "will be examining ways of being even more aggressive on reducing the tax gap."

More Evidence of Volcker Being Marginalized

We have what is arguably the best Fed chairman ever ready to roll up his sleeves during the worst financial crisis since the 1930s.

Team Obama has asked him to work on.....the tax code. From Reuters:

A panel led by former Federal Reserve Chairman Paul Volcker will study options for U.S. tax reform and report back to President Barack Obama by December 4, the White House budget director said on Wednesday.

Peter Orszag, director of the White House's Office of Management and Budget, said the panel would study tax simplification, tackling tax evasion, and reducing "corporate welfare."

He said the board would look at streamlining U.S. tax credits and being more aggressive at bringing in some $300 billion in annual uncollected tax revenues....

Volcker was chairman of the Federal Reserve during the Carter and Reagan administrations. He is now chairman of President Barack Obama's new Economic Recovery Advisory Board.

Orszag said the board would select a task force to study tax reform. He said Obama would like to see board members Laura Tyson, Martin Feldstein, Roger Ferguson and William Donaldson as part of that team.

Equity Extraction Chart

Equity Extraction Data

Earlier today I graphed the mortgage equity extraction data for Q4 2008 from Dr. James Kennedy at the Fed.

Thanks again to Dr. Kennedy for all the data!

For those interested, here is the equity extraction data from the Fed (excel file) Enjoy!

IMPORTANT NOTE: If you use this data, please read this note from the Fed:

Attached are the estimates of home equity extraction and related data through the fourth quarter of 2008, courtesy of Jim Kennedy. Please note that there will be no further updates to this data series.

These data are the product of a research project undertaken by Jim and Alan Greenspan. The data are not an official publication or product of the Federal Reserve Board. If you cite these data, please reference one of the two papers that Jim wrote with Alan Greenspan. For example, a reference might read something like this:

Example of "Little White Lies..."

Now, did you catch the revisions in this article? They mention it only once when they said this:

Demand for non-defense capital goods excluding aircraft, a proxy for future business investment, climbed 6.6 percent after falling 11.3 percent the prior month, a decline that was almost twice as large as previously estimated.

That statement was NOT included in this morning's release. Fortunately PointPark was smart enough to look at the raw data as reported by EconoDay:

Durable Goods: Good News Alert? Not Necessarily

Durable goods orders unexpectedly climbed during February, but demand in the prior month was revised down deeply, an adjustment countering the idea of a rebound in the slumping manufacturing sector. Manufacturers' orders for long-lasting goods increased by 3.4% last month to a seasonally adjusted $165.56 billion, the Commerce Department said Wednesday.
The 3.4% increase was a big surprise. Wall Street expected a decline of 2.0% for February. It was the largest increase since 4.1% in December 2007. But durables, which are goods designed to last at least three years, plunged 7.3% in January, revised way down from a previously estimated 4.5% decrease. Year over year, February durables were 28.4% lower, in unadjusted terms.

Change in Personal Income by State Q4 (Chart)

Chinese Holdings of U.S. Assets (Chart)

Dear A.I.G., I Quit!

DEAR Mr. Liddy,

It is with deep regret that I submit my notice of resignation from A.I.G. Financial Products. I hope you take the time to read this entire letter. Before describing the details of my decision, I want to offer some context:

I am proud of everything I have done for the commodity and equity divisions of A.I.G.-F.P. I was in no way involved in - or responsible for - the credit default swap transactions that have hamstrung A.I.G. Nor were more than a handful of the 400 current employees of A.I.G.-F.P. Most of those responsible have left the company and have conspicuously escaped the public outrage.

After 12 months of hard work dismantling the company - during which A.I.G. reassured us many times we would be rewarded in March 2009 - we in the financial products unit have been betrayed by A.I.G. and are being unfairly persecuted by elected officials. In response to this, I will now leave the company and donate my entire post-tax retention payment to those suffering from the global economic downturn. My intent is to keep none of the money myself.

I take this action after 11 years of dedicated, honorable service to A.I.G. I can no longer effectively perform my duties in this dysfunctional environment, nor am I being paid to do so. Like you, I was asked to work for an annual salary of $1, and I agreed out of a sense of duty to the company and to the public officials who have come to its aid. Having now been let down by both, I can no longer justify spending 10, 12, 14 hours a day away from my family for the benefit of those who have let me down.

You and I have never met or spoken to each other, so I'd like to tell you about myself. I was raised by schoolteachers working multiple jobs in a world of closing steel mills. My hard work earned me acceptance to M.I.T., and the institute's generous financial aid enabled me to attend. I had fulfilled my American dream.

Option ARM loans turn mortgages into minefields

Sheri Osorio refinanced her Corona home 2 years ago with an option ARM. She says a potential recast could raise her monthly payment from about $1,450 to $3,000.

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Davos's picture
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Re: Daily Digest - Mar 26

Wave #2...~~~~~~~/\~~~~~


Alt-A and option ARM data


Schwarzenegger Opens Up Fairgrounds to Residents of Tent City,,,,ok then, sounds like a recession to me


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Re: Daily Digest - Mar 26


Re-emerging As an Emerging Market

By Desmond Lachman

Sunday, March 29, 2009; Page B01


Back in the spring of 1998, when Boris Yeltsin was still at Russia's helm, I led a group of global investors to Moscow to find out firsthand where the Russian economy was headed. My long career with the International Monetary Fund and on Wall Street had taken me to "emerging markets" throughout Asia, Eastern Europe and Latin America, and I thought I'd seen it all. Yet I still recall the shock I felt at a meeting in Russia's dingy Ministry of Finance, where I finally realized how a handful of young oligarchs were bringing Russia's economy to ruin in the pursuit of their own selfish interests, despite the supposed brilliance of Anatoly Chubais, Russia's economic czar at the time.



Over the past year, I've been getting Russia flashbacks as I witness the AIG debacle as well as the collapse of Bear Sterns and a host of other financial institutions. Much like the oligarchs did in Russia, a small group of traders and executives at onetime venerable institutions have brought the U.S. and global financial systems to their knees with their reckless risk-taking -- with other people's money -- for their personal gain.

Negotiating with Argentina's top officials during their multiple financial crises in the 1990s was always an ordeal, and sparring with Domingo Cavallo, the country's Harvard-trained finance minister at the time, was particularly trying. One always had the sense that, despite their supreme arrogance, the country's leaders never had a coherent economic strategy and that major decisions were always made on the run. I never thought that was how policy was made in the United States -- until, that is, I saw how totally at sea Treasury Secretaries Henry Paulson and Timothy F. Geithner and Federal Reserve Chairman Ben S. Bernanke have appeared so many times during our country's ongoing economic and financial storm.

The parallels between U.S. policymaking and what we see in emerging markets are clearest in how we've mishandled the banking crisis. We delude ourselves that our banks face liquidity problems, rather than deeper solvency problems, and we try to fix it all on the cheap just like any run-of-the-mill emerging market economy would try to do. And after years of lecturing Asian and Latin American leaders about the importance of consistency and transparency in sorting out financial crises, we fail on both counts: In March 2008, one investment bank, Bear Stearns, is bailed out because it is thought to be too interconnected with the rest of the banking system to fail. However, six months later, another investment bank, Lehman Brothers -- for all intents and purposes indistinguishable from Bear Stearns in its financial market inter-connectedness -- is allowed to fail, with catastrophic effects on global financial markets.


On Wall Street there is an old joke that the longest river in the emerging-market economies is "de Nile." Yet how often do U.S. leaders respond to growing signs of economic dysfunctionality by spouting nationalistic rhetoric that echoes the speeches of Latin American demagogues like Peru's Alan Garcia in the 1980s and Argentina's Carlos Menem in the 1990s? (Even Garcia, currently in his second go-around as Peru's president, seems to have grown up somewhat.) But instead of facing our problems we extol the resilience of the U.S. economy, praise the most productive workers in the world, and go on and on about America's inherent ability to extricate itself from any crisis. And we ignore our proclivity as a nation to spend, year in year out, more than we produce, to put off dealing with long-term problems, and to engage in grandiose long-term programs that as a nation we can ill afford.

A singular characteristic of an emerging market heading for deep trouble is a seemingly suicidal tendency to become overly indebted to foreign creditors. That tendency underlay the spectacular collapse of the Thai, Indonesian and Korean currencies in 1997. It also led Russia to default on its debt in 1998 and plunged Argentina into its economic depression in 2001. Yet we too seem to have little difficulty becoming increasingly indebted to the tune of a few hundred billion dollars a year. To make matters worse, we do so to countries like China, Russia and an assortment of Middle Eastern oil producers -- none of which is particularly well disposed to us.

Like Argentina in its worst moments, we never seem to question whether it is reasonable to expect foreigners to keep financing our extravagance, and we forget the bad things that happen to the Argentinas or Hungarys of the world when foreigners stop financing their excesses. So instead of laying out a realistic plan for increasing our national savings, we choose not to face up to the Social Security and Medicare crises that lie ahead, embarking instead on massive spending programs that -- whatever their long-run merits might be -- we simply cannot afford. ..................

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Re: Daily Digest - Mar 26


As is typical of most publications they put a real "shine" on the story. They don't tell you that most people don't find enough gold after working 10 hours to pay for the gas to drive up there. It takes a long time to both be profiicient at mining and able to find a good spot that is not already claimed.


Yes, already claimed. They also don't tell you that you cannot in most cases go to any river or stream to pan for gold. Some places it is not allowed and most is already claimed. 

 I have been doing it for a while and I will make another expedition to Nor Cal this summer to do some more gold dredging. Maybe I too will have a mult-thousand dollar day but I doubt it.





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Re: Daily Digest - Mar 26

FT Alphaville » Blog Archive » The ascent of the shadow economy

 The ascent of the shadow economy

In times of financial uncertainty, shadow economies and ‘grey markets’ flourish. That’s because when you’re jobless, penniless and credit-less, the grey market offers both the means for earning ‘cash-in-hand’ as well as acquiring tax-free goods and services. For companies, it can mean cheap labour.

In times of real economic collapse, the grey market sometimes becomes the only option for obtaining any desirable goods at all (an experience best understood in war zones, totalitarian states etc).

Grey, by the way, should be differentiated from black which includes trading of vice goods like drugs, illegal arms, prostitution etc. By contrast, the grey or shadow market refers to work or trade conducted largely out of the sight of the tax office, social security office or which violates certain labour market laws.

Unsurprisingly, concerns over the expansion of this most non-taxable of economies are growing across the official realm.

Note some recent global headlines on the rise of the shadow economy:
WARSAW, March 10 (Reuters) - The slowing Polish economy may push many employees into the black market as companies will search for ways to save on costs, according to Leszek Zienkowski an economist from the Polish Academy of Science (PAN).  Zienkowski estimates that the size of the grey economy could grow by about 25 billion zlotys to 200 billion Polish zlotys ($53 billion) this year.

The Telegraph:

In a leafy corner of the Casa de Campo, the large park on the western outskirts of the Spanish capital, immigrants gather at illegal weekend markets filled with sellers offering traditional fare from their home countries.

The above reports provide some qualitative evidence on the emerging trend. Of course, the very nature of the shadow economy means concrete figures are harder to find. Ultimately, there are two ways really of assessing the data - either by the laborious collection of inland revenue/tax data or through methodologies based around money supply.

An expert on the shadow economy, Professor Friedrich Schneider from the University of Linz in Austria, uses mostly the latter. As he explains to FT Alphaville:

To estimate the size and development of a shadow economy is an awfully difficult process. One method is the currency demand method, in which I estimate how much currency (cash) is used for shadow economy activities. Another method is the MIMIC (multiple indicators, multiple causes) method, in which I link statistically the causes, why people work in the shadow economy to indicators in which shadow economy is reflected. Normally I used a mixture of both procedures.

According to his most recent findings (see chart below) the financial crisis will cause a clear reversal in the recent multiple-year decline of shadow economies in the western world.  Note below his findings for Germany, Austria and Switzerlandspecifically as relative in percentage terms to GDP.


 Here, meanwhile, are the projections for 2009 versus the historical for all the 21 OECD countries:

 As can be seen from the data, the UK is expected to see its shadow economy rise from 10.1 per cent of GDP in 2008 to 10.9 per cent of GDP in 2009. That’s one of the largest increases within the dataset.

In the US, meanwhile, the shadow economy is expected to rise to 7.6 per cent of GDP compared with 7.0 per cent currently. Schneider doesn’t read much into the UK case however, saying it doesn’t really differentiate Britain that much from other countries.

The general trend is more telling. The reversion back to an expanding shadow economy, according to Schneider, is obviously connected to the financial crisis. As he explains to FT Alphaville:
In the financial crisis, people have much less opportunities to earn money in the official economy. They can get either unemployment or have to work shorter, so they try to compensate their income loss through shadow economy activities.

Interestingly, the industry/sector that traditionally accounts for the largest part of the shadow economy is construction. Given the current crisis’ connection to that sector specifically, it will be worth seeing if any other sectors become more partial to growth this time around.

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Re: Daily Digest - Mar 26

Will this second wave of mortgage defaults be worse than the subprimes? Is the derivative market tied into it somehow because I can't help wonder why that 700 trillion monster hasn't really done anything yet.


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Re: Daily Digest - Mar 26

Great article, CB, thanks! 

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Re: Daily Digest - Mar 26

I forget who suggested

Where we are headed: Peak oil and the financial crisis

a day or two ago. But, I'd like to thank you. Thought it a great presentation. 

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Re: Daily Digest - Mar 26
CB wrote:


Re-emerging As an Emerging Market

By Desmond Lachman



CB's picture
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Re: Daily Digest - Mar 26

reistr and ccpetersmd, that WP article was linked to in a blog post by Glen Greenwald at Salon discussing the state of the "rule of law" these days:


An excerpt:

Yves Smith last night noted the rather extraordinary (though unsurprising) development that the very institutions that played such a critical role in the crisis -- Citibank and Bank of America -- are now using the TARP funds they received not to extend more loan (the ostensible purpose of the bail-out), but rather, to buy up more and more of the very distressed assets that Geithner insists they need to be relieved of, because they now know that, under Geithner's plan, they will be able to sell them at a substantial profit courtesy of public funds (i.e, the Government will buy those crippled assets at well above their current market price).  As Smith puts it:  "So not only are they seeking to extract far more than was intended even with the already generous subsidies embodied in this program, but this activity is also speculating with taxpayer money. . . .Welcome to yet more looting."

Despite the limitless gorging on public funds by the very oligarchs (government owners) who caused the financial crisis in the first place, the predominant sentiment from our establishment media now is that Obama needs to force ordinary Americans to "sacrifice more."  Back in 2006, Jonathan Schwarz wrote this very prescient post predicting that the U.S. would soon adopt the type of so-called "structural adjustments" which we repeatedly forced upon heavily indebted, defaulting nations through the IMF:  whereby we would demand that they pursue solutions that further enriched their economic elites while massively cutting the social spending that provided the barest of safety nets to their ordinary citizens.  As Schwarz put it yesterday in citing highly revealing comments by Tim Geithner at a CFR conference this week:

There's been a common phenomenon in the third world over the past three decades or so. A country's financial sector, in collaboration with the larger financial world, would create some type of gigantic economic fuck up. The IMF would then (in collaboration with the local financial elites) step in and provide loans in return for what was called "structural adjustment." Structural adjustment involved getting rid of any kind of social spending that made life bearable for everyone else.

In other words, the country's financial elites would use the catastrophes they'd created themselves in order to do what they'd always wanted to but couldn't get away with in normal times. They took the profit, and then imposed all the costs on everyone else.

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Re: Daily Digest - Mar 26

To Davos and the other fine contributors to this thread - thanks for the information and analysis.  This is a great resource.

Didn't see your post about it until after I posted my take on the Daniel Hannan speech at the forums section -  Daniel Hannan MEP: The devalued Prime Minister of a devalued Government.  In a nutshell, I think his remarks are equally accurate for both Brown and Obama.  They are both implementing the same strategy - destroy the real economy, put the people in perpetual debt and servitude and grow the fascist state.


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Re: Daily Digest - Mar 26
FireJack wrote:

Will this second wave of mortgage defaults be worse than the subprimes?
Is the derivative market tied into it somehow because I can't help
wonder why that 700 trillion monster hasn't really done anything yet.


I'd like to hear some experienced/educated perspective on this too. Additionally, what is the refinance world looking like for those with arms?  Thx.

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Re: Daily Digest - Mar 26


Has anyone mentioned this interview with economist Michael Hudson - it is really a good piece (and fits nicely with Taibbi's Big Takeover article)

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Re: Daily Digest - Mar 26

 Attack on Brown a YouTube hit must see

This video needs to be seen by more than a million people today. Then perhaps our prim-minister would be sufficiently ridiculed in the tabloids tomorrow. Enough to wipe that pathetic smirk whilst listening to Daneil Hannan from his face.

Picked up by American muckraking website the Drudge Report, Daniel Hannan's attack on Gordon Brown is YouTube's most watched clip in Britain. 

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Re: Daily Digest - Mar 26

They all have that smirk.  Obama, Bush, Cheney, Biden.  I can't describe the anger that smirk fosters in me.   Awesome video.  A well deserved and eloquent dressing down.

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Re: Daily Digest - Mar 26

With 10's of thousands of vacant homes,  why are a hundred or so people living in tents, why don't they squat some of the empty homes? Is it a stunt?


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Re: Daily Digest - Mar 26
DrKrbyLuv wrote:

To Davos and the other fine contributors to this thread - thanks for the information and analysis.  This is a great resource.

Didn't see your post about it until after I posted my take on the Daniel Hannan speech at the forums section -  Daniel Hannan MEP: The devalued Prime Minister of a devalued Government.  In a nutshell, I think his remarks are equally accurate for both Brown and Obama.  They are both implementing the same strategy - destroy the real economy, put the people in perpetual debt and servitude and grow the fascist state.


As Yogi bear used to say "It's deja vu all over again" - Obama and Brown with their economic plans remind me of Blair and Bush hand in hand blindly going into war in Iraq.

There are a lot of people that believe there is a conspiracy to take power and put into the hands of the finantial elite. I completely disagree, not with the outcome, but with the existence of such conspiracy.

The problem, in my view, is that the combination of sheer incompetence and greed of the finantial establishment destroyed a huge percentage of the World's wealth. Once that happened, it's always easier for the government to impose sacrifices on the masses of tax payers than on the wealthy.

Why is that?

The wealthy, who include those same greedy financial workers mentioned above, but also all sorts of entrepeneurs, don't have their money under their matresses. Most of it is invested in very legitimate businesses, be it IBM shares, of a franchise of A&W, etc. If the government goes after that money they have a very easy argument that it's counter productive and that the masses will just hurt more because of the layoffs that will be caused...

The wealthy are also educated and they KNOW how government policy will affect them. So they will lobby and scream very loudly if bad news come in their direction.

On the other hand the masses have very little understanding of government policy. How can you explain to a labourer that it's a bad idea to have a large deficit? There are a lot of intricacies of the economy and government policy that are hard to grasp. For an example, the easiest way to "tax" the masses without any complaints is by printing money - The beauty of it is that you are taxing everyone who has any money (by inflating it) and it's completely transparent. It's not a coincidence that this is the approach now been taken by the government.

So, it's much easier for the government to sell a negative plan to the masses than it would be to sell a negative plan to the elites... Add to that the fact that the elites are financing their campaigns, and also the obvious fact that most politicians are really only concerned about re-election.

The final product is simple - The wealthy gain, no metter how bad they, as a whole, screw up.


Of course the natural result of this vicious circle is exactly the same as if it had been a deliberate attempt to increase the power of the wealthy and to increase a class divide...

The only hope to stop this natural cycle is to have a group of honest and educated representatives, media and activists, strong enough to stand up against the status quo - To inspire everyone, starting with the elites, to sacrifice for the greater good, to lead by example. I feel that the US people are in dire need of this type of representatives, and I hope some will naturally rise in this time of crisis.

Another problem is that the concept of sacrificing for the good of society, after WWII started being depicted as socialism, and looking out for number 1 has become the American dream...

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Re: Daily Digest - Mar 26

I just came across this visualisation of the US economy:
Economic Recovery Dashboard - Russell Investments
As of 2009-03-27 5 out of the 7 indicators on this visualisation are in the "extreme" range.
Also the PDF download on the above link seems like a good resource for all the economy nerds here on CM.

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Re: Daily Digest - Mar 26

Hello Turbo and DireJack:

Your answer lies in here

My memory is not what it use to be and I just read way too much, but if I recall the subprime mess was either 1 or 1.5 trillion and I believe that is what wave 2 of the option arm and alt a's will be.

That said, I think it could be much worse given two reasons:


  1.  Based on Case-Shiller we see prices dropping like a brick, so many people will be unable to get a mortgage for over what the property is appraised for 
  2. The economy is so fragile right now, this is going to be like a gorilla swatting a fly 
Take care


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Re: Daily Digest - Mar 26

Watching that mortgage meltdown video again I can't but notice that they seem to say the recession will simply go on a bit longer.This garbage will go through and then we'll go on just like before. Here is whats in the globe and mail today:


Ontario accepts deficits as way to boost economy

Finance Minister Dwight Duncan tabled a budget that shows Canada's
largest province in the red until the fiscal year ending March 31,
2016. Next year, the deficit will peak at $14.1-billion, $1.7-billion
more than the record $12.4-billion deficit under the former New
Democrat government in 1993.



Am I wrong to think the devastation will be great?  I've been trying to get a clearer picture of just how bad it will be and on the Internet I'm seeing run for the hills collapse and in real life and tv I'm seeing recession. You know they type you don't even notice unless you watch the news or lose your job. 

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Re: Daily Digest - Mar 26

Firejack:   the revolution (depression) will not be televised.

 Were it not for the internet and blogs, many would not even be aware of it.

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Re: Daily Digest - Mar 26

Tent city is another media deception ( I know a Big shock).  I was born and raised in Sacramento and Tent city has always been there.  Right across the street from tent city is a homeless shelter called loaves and fishes that takes care of the homeless.  I have volunteered at this shelter for years and there has always been homeless people living by the river.  There is such a large homeless population in Sacramento because of the mild climate, and the easy access to social services.  However now that the media cast such a light about Tent city all over the country (thanks Opera), the homeless have been moved, and their happy little community is ruined.  

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Re: Daily Digest - Mar 26

Firejack - you ask the 64 trillion dollar question - "what will come next?" and as we are in unknown territory no one really knows. As you can see opinions vary widely and many intelligent and knowledgeable people disagree profoundly about the answer. Those you cite that think this is just another recession don't believe there is anything fundamentally wrong with the financial system. My understanding of their position is that if people regain their ability to borrow and spend again at something like the level of the past decades that things will get back to normal. Many others, including most people visiting this site believe that the current economic model is fundamentally flawed - that so much debt has been created that it is beyond the capacity of the world economy to generate enough wealth to pay it back. The only way forward is either outright debt default or inflationary default. If either of these occur it will radically change people's lives. I believe that Canada is the US's largest trading partner, the second being Mexico so what affects one dramatically will affect the others.

As the CC lays out it is simply not possible for growth to continue the way it was for very long - it is simply not sustainable - there are insufficient resources - food, water, oil, etc and too amny people to enable this. A more sustainable situation WILL BE reached - this is the law of nature and cannot be violated. IMO the only question is how traumatic the transition will be and how quickly it will occur.

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Re: Daily Digest - Mar 26

Firejack and CB..couldn't have said it better.  What I find so alarming is the number of intelligent people who prefer to live "in denial" about the truth.  I guess the shock of comprehension is so great many prefer to just "ride it out," refuse to prepare for the ultimate outcome.  It is sad.

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Re: Daily Digest - Mar 26
DrKrbyLuv wrote:

To Davos and the other fine contributors to this thread - thanks for the information and analysis.  This is a great resource.

Didn't see your post about it until after I posted my take on the Daniel Hannan speech at the forums section -  Daniel Hannan MEP: The devalued Prime Minister of a devalued Government.  In a nutshell, I think his remarks are equally accurate for both Brown and Obama.  They are both implementing the same strategy - destroy the real economy, put the people in perpetual debt and servitude and grow the fascist state.


And here is Daniel Hannan writting about the world's reaction:

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